Economic history: Germany’s hyperinflation-phobia

Posted: November 15, 2013 in economy
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HYPERINFLATION is among the worst catastrophes that can befall an economy. It can destroy output and destabilise societies. The hoarding of real assets, such as property and precious metals, wrecks business and financial investment in countries afflicted by it. Business costs soar, as wages and prices have to be increased on an hourly basis, reducing productivity. Foreign investment evaporates as the financial risks of doing business rise. The sudden redistribution of wealth from creditors to debtors can eat at civil society and discredit political institutions. John Maynard Keynes, as early as 1919, recognised the threat inflation posed to modern capitalist societies:Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency… [he] was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.The German public, it seems, is particularly fearful of letting inflation getting out of control. This is, in part, due to the legacy of the German hyperinflation of 1922-3. The mark-dollar exchange rate rose from 4.2 to one in 1914 to a peak of around 4.2 trillion marks to the dollar by November …

via Economic Crisis http://www.economist.com/blogs/freeexchange/2013/11/economic-history-1?fsrc=rss

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